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American Express, Discover to Pay Cost of Disruption

By John Carney

Beware credit-card offerings that look cheap.

It is tempting to see shares of American Express and Discover Financial Services as a bargain. Each trades at a forward-earnings multiple that is lower than the level of a year ago, despite the broader market moving in the opposite direction. But this is a temptation best resisted.

The two credit-card companies have struggled to expand recently. Discover’s second-quarter revenue was essentially flat with the prior year, while profits fell 7%. American Express saw revenue fall 4% and profits slump 3.7%.

Management at both say they expect much better performance in the future. American Express says it sees earnings per share starting to increase again in 2016 and to be within its target range of 12% to 15% growth in 2017.

There are reasons to be skeptical. First is the real possibility technological innovation takes a steeper toll than expected. At the least, the existence of so many venture-capital-backed “fintech” projects makes it hard to confidently predict how consumer payments may change over the next two years.

This isn’t just a phantom menace. Newly independent PayPal Holdings trades at 26 times forward earnings, giving it a market value of $45.1 billion. That reflects growth expectations that imply an increasing migration of payments into the digital world. And a good deal of that could come out of the market share of credit-card companies.

Then there are Apple and Google. While Apple Pay and Google’s Wallet haven’t been smashing successes, the threat they pose can’t be ignored.

These are two companies with a history of displacing long-established leaders in a number of sectors. So far, Apple is playing nice with credit-card companies and banks, just as it did with the music industry, before eventually swallowing much of its profits.

Less flashy but still important is the challenge from big banks. These have been aggressively expanding consumer credit-card operations, notably in the poaching of Costco Wholesale by Citigroup and Visa from American Express.

This doesn’t mean the sky is falling for American Express or Discover. But it does mean expenses for marketing and technology will likely remain elevated to preserve market share against tech-savvy newcomers.

Without the ability to bring down expenses, earnings growth may prove elusive.

Citadel Says One of Its China Accounts Was Suspended

BEIJING—U.S.-based hedge fund Citadel LLC said trading in one of its China accounts has been suspended, as Chinese regulators investigate a steep slide in prices in the country’s stock market.

China’s securities regulators said Friday they were investigating 52 instances of suspected securities violations and broken promises not to sell down shareholdings, as the country’s stock markets plunged in June and July. The government didn’t name any companies at the time.

Citadel said Sunday one of its accounts was among the restricted ones.

“We can confirm that while one account managed by Guosen Futures Ltd.—Citadel (Shanghai) Trading Ltd.—has had its trading on the Shenzhen Exchange suspended, we continue to otherwise operate normally from our offices, and we continue to comply with all local laws and regulations,” a Citadel spokesman said in a statement.

The China Securities Regulatory Commission said Friday on its website that it has launched a probe into automated trading and restricted 24 stock accounts suspected of influencing stock prices.

Chinese media reported over the weekend that one of the restricted accounts was co-owned by Citadel and major Chinese brokerage firm Citic Securities. Citic Securities said Sunday it invested in the account in 2010, but it sold off its stake in November 2014 and no longer owns stock in the account, according to China’s official Xinhua News Agency. Citic Securities didn’t immediately reply to a request for comment.

For all of July, Shanghai’s main index absorbed its worst monthly losses in six years. The index fell 1.1% on Friday, with more than 70 stocks on the Shanghai and Shenzhen markets falling the maximum daily trading limit.

Shares held by foreign investors currently account for only around 2% of all the equities traded on the mainland. It wasn’t clear whether any of the other 23 suspended accounts are owned by foreign companies.

China has been putting under scrutiny both individual traders and stock-trading accounts as part of its effort to stem to slide that began in June. Last week, it said the listed arm of a state-owned plane maker and two of its shareholders may have violated stock-selling rules. The unit said it would cooperate. The search for what state media have called “malicious” forces is part of a larger effort to halt the summer plunge that also includes big buying by state-controlled companies.

–Lingling Wei in Beijing and Yifan Xie in Shanghai contributed to this article.

Countdown to Rate ‘Liftoff’ Could Be Disrupted

By Spencer Jakab

It is getting late early for the doves.

With only a little more than six weeks until the Federal Reserve’s next meeting, which could see an end to its nearly seven-year experiment with zero interest rates, there still are a handful of official data releases that could tip the balance toward a delay.

The most likely culprit would be sudden weakness in the labor market. This Friday’s jobs report will be the penultimate take on the situation before the mid-September meeting. A dark horse would be a worryingly soft measure on consumer-price inflation. Readings are due Aug. 19 and then once again during the Fed meeting itself.

But arguably no government statistic holds a candle to the Institute for Supply Management’s monthly survey of purchasing managers as a reliable coincident indicator of economic weakness. Every data series is prone to blips and false alarms, but the ISM has had fewer than most and deserves more notice in the event of a nasty surprise. It also has the advantage of being binary: A number below 50 signifies contraction and is clearly a bad sign for the economy.

June’s reading of 53.5 was the 30th consecutive one in expansion territory. Of the 72 monthly surveys since the recession ended, only two have been in contraction. And one was a barely contractionary 49.9 reading the month the recovery began, well before government or private-sector economists had concluded the economy was expanding again.

Going back to 1948, a period spanning 11 recessions, the ISM has been surprisingly consistent. It averaged 43.1 during recessions and 54.7 during expansions.

It has spent time in contraction territory outside of recessions, but mostly just before or after the official start dates of economic downturns. Others were mainly during times of geopolitical stress or market jitters such as the Korean and Vietnam Wars, the run-up to the second Gulf War, and the turbulent months after Russia’s default and the collapse of hedge fund Long Term Capital Management in 1998. Overall, the measure has been in contraction 19% of the time outside of recessions and 87% during recessions.

After rising for the past two months, the ISM shows no indication of economic weakness that might prompt the Fed to hold its fire this fall. Survey says: time for liftoff.

Fitbit’s Valuation Puts It on the Treadmill

By Dan Gallagher

As Fitbit limbers up for its first results report as a public company this week, it can be glad the market for fitness bands is growing at a rapid clip. Yet there may be a higher cost for staying in the race.

Garmin reported last week thatrevenue in its fitness category increased in the second quarter by just 5% year over year—its slowest growth ever for that segment. Worse, the division’s operating margin was just 21% compared with 42% a year earlier. Garmin cited “competitive pricing dynamics” along with currency impacts and stronger sales of lower-priced products in the mix as the main reasons for the weak performance.

How that bodes for Fitbit’s numbers, out Wednesday, remains to be seen. As the market leader, Fitbit is believed to have strong pricing power. But competition is rising fast.

Xiaomi launched its ultracheap Mi bands in the U.S. in late May, starting at just $15. Fitbit’s bands start around $100. Another wild card is the Apple Watch, which went on saleearly in the June quarter and is believed by several analysts to have sold about 2.5 million units.

Xiaomi has already made an impact. In the first quarter, its share of the global market for wearables—which include fitness bands among other devices—jumped to 25% from zero the year before, according to IDC. Fitbit’s sales more than tripled in that time, but its share of wearables still went from 45% to 34%, IDC says.

Analysts already expect tighter margins for Fitbit. Its margin of earnings before interest, taxes, depreciation and amortization is forecast to come in at just 12% in the second quarter, excluding stock-based compensation, according to FactSet. That margin was 26% a year earlier. But analysts project revenue to surge 181%, year over year.

Maintaining rapid growth along with a healthy bottom line is a challenge facing many tech companies. Raising the stakes for Fitbit is another familiar accouterment in the sector: a rather fat premium garnered since listing in June. Fitbit now trades at about 77 times forward earnings. At that level, the company will have to keep its strong lead without being tripped up by its rivals.

It is easy to understand why a rising deal-making tide lifts Wall Street. The advisory business generates big fees and doesn’t chew up regulatory capital. And also arrange the loans and securities issuances that finance deals.

Shareholders should be wary. By almost any measure, acquiring companies tend to report worse returns after acquisitions than nonacquiring counterparts. Return on equity, return on assets and profit margins on sales all tend to sink for several years after a big deal, hitting their nadir about five years after closing, academic research shows.

Not all deals are created equal. Acquisitions made with stock are associated with particularly bad returns. So are deals made by cash-rich firms looking for ways to reinvest profits. And while diversification is good for investors, deals that involve a company expanding outside its core area tend to destroy value.

Investors in target companies, of course, can see big paydays. But because targets tend to be smaller than acquirers, a shareholder with a diversified portfolio can see gains swamped by the negative effects on buyer returns.

Deal making has a bad reputation even in the corner offices of corporate America. Executives surveyed about deals typically say only about one-third create value for buyers. And just one-fifth achieve strategic goals, they say.

So why do deals? Those surveys tend to find some executives believe their own deals are an exception to the rule. For investors, that is too rarely the case.

KKR Founder Jerome Kohlberg Dies at 90

Jerome Kohlberg, an architect of the leveraged buyout and co-founder of private-equity giant KKR & Co., has died. He was 90.

Mr. Kohlberg died at his Martha’s Vineyard home on Thursday after a long battle with cancer, according to Kohlberg & Co., the firm he founded after he left KKR in 1987.

“Jerry led an amazing life and leaves a tremendous legacy in business, philanthropy and family,” Samuel P. Frieder, Kohlberg & Co.’s managing partner, said in a note to the firm’s investors on Friday.

Mr. Kohlberg founded Kohlberg Kravis Roberts & Co. in 1976 with Henry Kravis and George Roberts. The three men, who worked together in Bear, Stearns & Co.’s corporate-finance division, launched the firm with just $120,000 in capital, according to the book “Merchants of Debt: KKR and the Mortgaging of American Business,” by former Wall Street Journal reporter George Anders.

“Jerry was a real visionary, having played an important role in developing the private equity model in the 1960s, and he was a true mentor to George Roberts and me,” Mr. Kravis said in a statement emailed on Saturday.

While at Bear Stearns, Mr. Kohlberg developed the so-called bootstrap deal, a type of buyout of companies owned by older founders. The structure allowed families to avoid huge estate taxes upon the founder’s death while still keeping a stake in the business.

In the early 1970s, Mr. Kohlberg expanded the bootstrap deal to buy the unwanted units of old-line industrial companies that made products like bricks and wires, a history chronicled in the 1990 book “Barbarians at the Gate: The Fall of RJR Nabisco.” He used banks loans to cover a large portion of the purchase price, much the same way a family would use a mortgage to buy a house.

After its founding, KKR began targeting bigger fish. The firm completed the first buyout of a major publicly traded company in 1979.

KKR grew rapidly in its first 10 years amid the takeover boom of the 1980s. By 1985, it accounted for about a third of the entire leveraged buyout business, the Journal reported in 1986. It did $6 billion worth of deals that year, including the buyouts of broadcaster Storer Communications Inc. and Union Texas Petroleum, the firm’s first foray into the energy industry.

The next year, KKR completed the largest leveraged buyout then on record: the $6.2 billion acquisition of Chicago-based food and consumer products company Beatrice Cos.

As KKR’s star climbed, Mr. Kohlberg grew uneasy with his partners’ desire to pursue companies more aggressively, according to a 1988 Journal article. A champion of friendly deals, he also was wary of Mr. Kravis’s plan to begin quietly buying small stakes in target companies.

Mr. Kohlberg left the firm in 1987. “It was a divorce,” a friend of all three men told the Journal. Their disagreements “just caused them to grow apart.”

Mr. Roberts in a statement emailed on Saturday said he and Mr. Kravis are “proud that our firm’s name is Kohlberg Kravis Roberts. Jerry will be missed and remembered by many.”

Mr. Kohlberg and his son, James Kohlberg, founded Kohlberg & Co., which went on to specialize in buying midsize companies. He also continued to invest in KKR’s deals, including the $25 billion RJR Nabisco buyout, according to “Merchants of Debt.”

In 1989, Mr. Kohlberg sued KKR, claiming Messrs. Kravis and Roberts illegally reduced his stake in four companies KKR bought between 1979 and 1985. The suit was later settled and terms weren’t revealed.

Mr. Kohlberg continued to keep a low profile after leaving KKR. A father of four, he was a “homebody” who “dressed simply, led a quiet family life, and spent his free time playing tennis or reading thick volumes of fiction or biography,” Bryan Burrough and John Helyar wrote in “Barbarians at the Gate.”

He retired from Kohlberg & Co. in 1994. His son, James, is the firm’s chairman but devotes most of his time to outside activities including venture capital investments, according to the firm’s website.

An active philanthropist, Mr. Kohlberg supported a broad array of causes with his wife, Nancy, but they shunned public announcements of their donations. “If you put your name on a building, you feel a little self-conscious, a little tasteless,” Mr. Kohlberg told the Journal for a 2008 story on anonymous giving.

Still, he was passionate about the causes he supported. In the aftermath of the financial crisis, Mr. Kohlberg took up the cause of people who were in danger of losing their homes to foreclosure and worked with banks to get troubled loans refinanced, he told the Vineyard Gazette, the Martha’s Vineyard newspaper he bought in 2010.

He also was a longtime supporter of an effort to change campaign finance laws.

Mr. Kohlberg, who served in the Navy during World War II, urged lawmakers to beef up the GI Bill to fully fund the education of veterans returning from the wars in Iraq and Afghanistan. In a 2008 Wall Street Journal op-ed, he credited the GI Bill with allowing him to earn a bachelor’s degree from Swarthmore College, a business degree from Harvard University and a law degree from Columbia University.

“I deeply believe that we have a moral responsibility to provide today’s returning veterans with the same educational opportunities that my generation received,” he wrote.

China Railway Signal Raises $1.42 Billion in Hong Kong IPO

By Yvonne Lee

HONG KONG—State-owned China Railway Signal & Communication Corp. raised US$1.42 billion after pricing its Hong Kong initial public offering at the lower end of an indicative price range, as turmoil in China’s stock market took a toll on demand for the rail-signal maker’s shares.

The world’s largest maker of train traffic control systems sold 1.75 billion new shares at 6.3 Hong Kong dollars (81 U.S. cents) each, a person familiar with the situation said Saturday, making the deal Hong Kong’s fourth-biggest IPO this year.

China Railway Signal priced the deal at the lower end of its HK$6.30 to HK$8.00 indicative price range even as the company had secured cornerstone investors for more than half the IPO shares before taking orders. Cornerstone investors, who usually commit to hold the stock for months after a company’s listing, help boost other investors’ confidence in the company.

In Hong Kong, bankers can sell part of the shares to be floated in an offering to cornerstone investors before official order-taking begins.

Big listings this year in the city include the US$5 billion IPO in May by Chinese securities firm HTSC, better known as Huatai Securities, and the US$4.1 billion IPO by rival GF Securities Co. in March, according to data provider Dealogic. China Railway Signal’s IPO ranks below the US$1.98 billion fundraising by Chinese conglomerate
Legend Holdings Corp. in June.

Investors’ appetite for IPOs has been hit by slumping Chinese stock markets. China’s shares suffered their worst month in nearly six years in July, after confidence in a government-led recovery wavered earlier last week, knocking shares lower. The Shanghai Composite Index tumbled 14% in July, its worst monthly performance since August 2009, while Hong Kong’s benchmark Hang Seng Index dropped 6% during the period.

The 16 cornerstone investors that bought into China Railway Signal included several state-owned firms. China Railway Group took $100 million worth of shares and life insurer China Life Insurance Co. agreed to buy $50 million.

Lloyds Bank Retail Sale to Yield Political Dividends

By Paul J. Davies

The plan to offer retail investors a chance to buy a chunk of the government’s holding in Lloyds Banking Group is meant to sound like a shot at popular and inclusive wealth creation. Actually, it looks more like a gift to a lucky few at taxpayers’ expense.

Even so, it may be good for existing shareholders because it should buy Lloyds and its investors something that money cannot: political insurance.

The government has been offloading stock in Lloyds since 2013, cutting its stake to less than 16% from 40%. It has got back £12.5 billion ($19.5 billion), so far, and all shares were sold for more than the average the state paid.

Meanwhile, the bank itself has won fans among investors eyeing a big potential pickup in dividends from this year.

But Lloyds’ dominant market share in retail banking—it has about one-quarter of U.K. personal deposit accounts and home loans—puts it in an uncomfortable position for two reasons.

First is a government-ordered competition review due next April. This was spurred by a broad political desire to see more, smaller banks play a bigger role. If any bank is going to be in the firing line of proposals to redistribute market share, it will be Lloyds.

Second is the U.K. bank levy. George Osborne, finance minister, increased this just before the recent election, but may look to restructure it in the national budget in July because it hits HSBC and Standard Chartered disproportionately, leading both to bluster about quitting the U.K.

It would be political dynamite to scrap the levy—which is designed to raise more than £3.5 billion a year—after an election fought on the need for austerity and with expected welfare cuts of £12 billion a year. One idea is to redistribute the levy by charging it against the size of U.K. rather than global balance sheets. That would hit Lloyds with the lion’s share of the bill.

But the planned retail share offer should inoculate Lloyds against painful outcomes on both fronts.

The sale will be done at a discount to the market price. That costs taxpayers the chance for better returns, but is likely to hand a windfall to people lucky enough to have the cash on hand to enter the Lloyds stock lottery.

But those same new shareholders would feel cheated by a government that then turned around and hit Lloyds with either higher taxes or restrictions to its market share. That would cut political dividends, which is why management and institutional investors in Lloyds will cheer a retail sale.

“The market seems to be in a position-reduction mode as it waits for the weekend action to begin in Greece,” wrote foreign-exchange strategists at Citigroup.

In currency markets, the euro edged up 0.1% against the dollar to $1.1109. The common currency had made small gains against the buck on Thursday after data showing weaker-than-expected U.S. job growth.

In commodities, Brent crude oil fell 2.7% to $60.42 a barrel, and gold rose 0.2% to $1,165.40 an ounce.

TOKYO—Japanese police on Saturday arrested Mark Karpelès, the head of collapsed bitcoin exchange Mt. Gox, alleging that he manipulated the company’s computer system to increase the balance in an account.

Japanese media aired footage of Mr. Karpelès being led by police officers from his apartment before 7 a.m. Saturday. A police spokesman said Mr. Karpelès is suspected of manipulating his own account at the company by making it appear that $1 million was added to it. The connection between that allegation and the missing bitcoins wasn’t clear.

Another official said some of the bitcoins Mr. Karpelès described as lost may not have existed.

Mr. Karpelès wasn’t immediately available for comment on Saturday. On Friday, following a Nikkei report that he was going to be arrested, he said in instant messages to The Wall Street Journal that the allegations were “false” and he would “of course deny” them. His attorney didn’t answer calls seeking comment.

Mr. Karpelès hasn’t been formally charged. In Japan, suspects can be detained for up to 23 days without a formal charge or the possibility of bail. He was being detained on Saturday.

When the troubles at Mt. Gox came to light in early 2014, it led to world-wide recriminations among bitcoin users and exchanges. Angry customers flew to Mt. Gox’s headquarters in Tokyo’s hip Shibuya district for a sit-in protest.

Mr. Karpelès blamed hackers for the vanished bitcoins and said the company’s security was weak. The company said it later found some of the missing bitcoins, but says the whereabouts of most of the missing currency remain unknown and it isn’t clear how much the exchange’s 127,000 creditors will be able to retrieve.

The exchange is in liquidation. A court-appointed trustee last year appointed Payward Inc., another bitcoin exchange operator in San Francisco, to help the court with the work. A spokeswoman at Payward declined to comment on the allegations about Mr. Karpelès.

After the Mt. Gox bankruptcy, Mr. Karpelès moved out of his skyscraper residence in Tokyo’s Shibuya district and settled at a lower-rent location. In instant-message exchanges with the Journal, he said he loved “the simple life of a developer” of software.

Short Bets on Shares
Reach a High Point

More investors are going short.

Short interest on stocks in the S&P 500 recently hit its highest level in more than 21/2 years, according to data provider Markit. The measure, which tracks the percentage of shares on loan for negative bets, shot to 2.5% in early July, the highest since December 2012. It has since pulled back to 2.4% as of July 22, the latest data available.

The jump in short bets, or wagers that prices will fall, coincides with a modest pullback in the stock market in early July. The S&P 500 fell as much as 3.6% between late June and early July, but gained of 2% for the month.

Kent Engelke, chief economic strategist at Capitol Securities Management, said the rise in short interest is a side-effect of a stock market in which fewer and fewer stocks are driving the market’s gains. With fewer stocks climbing, more investors are willing to stick their necks out to make negative bets.

“This huge increase in short interest is a function of this momentum-driven market,” he said. “You’re seeing everyone going in and buying Facebook and a handful of other names, and they’re shorting everything else.”

The energy sector is among the most shorted, according to Markit, with 4.5% of shares out on loan. This coincides with the huge slide in oil prices and a fire sale in energy stocks.

Mr. Engelke said the rise in short interest is a good thing, because it can portend a rally if short bettors get “squeezed,” or have to rush in and buy stocks to cover their negative bets. “When you have that snapback, that snapback is greater because not only do you have your buyers going in there but you also have your shorts going in there and covering those positions,” he said.

Some investors say the rise in short interest doesn’t mean much. Kate Warne, investment strategist at Edward Jones, thinks of it as a barometer of short-term sentiment that is prone to fluctuations. “They’re wrong as much as they’re right,” she said of short investors.

–Dan Strumpf

Computer-driven hedge funds have had a torrid time of late. But in July, at least, they are making a comeback.

So-called CTAs, for commodity trading advisers, which use complex algorithms to try to profit from trends in financial markets, were star performers last year and at the start of this year, helped by oil’s long decline and gains in stocks and bonds.

But this year’s second quarter saw profits at some big-name managers erased, as bond and stock markets wobbled on Greece’s debt crisis and uncertainty on U.S. interest rates.

However, early data from Hedge Fund Research, shows CTAs up 3.5% in July, putting them 0.4% ahead for the year.

The monthly jump beat macro funds, which tend to use human judgment to make trades. Macro funds as a whole rose 2.3% for July, but are up 0.9% for the year.

CTAs benefited from bets on gold, oil and the euro, said HFR President Ken Heinz, which all lost ground in July. In some cases, funds switched the positions they held in June.

AHL Diversified Programme is up 4.2% for the month to July 29, according to data from the firm, paring losses this year to 2.5%. And Cantab Capital Partners LLP’s $2.7 billion CCP Quantitative Fund is up 5.8% for the month to July 24, said a person who saw the numbers.

Commodities Slide Deeper Into a Rut

Commodity prices tumbled anew, plunging the S&P GSCI Total Return index to its worst monthly loss since November 2008 and deepening a yearslong rout that few observers expect to moderate.

The index, which tracks a basket of commodities, fell to its lowest level since 2002 on Friday, according to data from S&P Dow Jones Indices. All but one of the 24 index components posted losses for July.

Investors in commodity markets are confronting threats from a slowdown in China, an anemic global economy and the prospect of higher U.S. interest rates from the Federal Reserve. The dollar, which has rallied this summer on expectations of tighter U.S. monetary policy, is also pressuring prices of raw materials, which are traded in the U.S. currency and become more expensive for buyers in other countries when the buck rallies.

Hopes that China has seen the worst of its economic slowdown were spurned after the country’s stock market dived in July, notching its worst month in six years. China is the largest consumer of raw materials, and investors now fear that problems in its equity market will reverberate across the economy in coming months as cash-strapped consumers abort purchases of new cars, homes and other goods.

Europe is battling to stave off another economic downturn. A weaker euro hasn’t buoyed exports from the region, and growth and inflation remain stubbornly low. This dims any prospect of higher demand for raw materials from the region.

Commodity prices are also under pressure as supply of many raw materials runs ahead of global demand. Companies that grow soybeans or mine for coal outside the U.S. are opting to keep up production because weaker domestic currencies keep their costs low, while a stronger dollar means they bring homxxe larger profits despite falling prices.

Against this backdrop, many investors are choosing to give commodities the cold shoulder.

“Folks are being very cautious in terms of where they want to apply their capital, we’ve seen that in commodities…it just continues to be an area that people want to avoid,” said Dan Farley, chief investment officer at State Street Global Advisors, who helps manage $2.4 trillion. Mr. Farley said he reduced investments in the sector at the end of 2014.

July’s selloff touched every sector, with U.S. crude-oil prices tumbling 21%, their worst drop since October 2008, to $47.12 a barrel. Traders were caught off guard by reports that U.S. oil drilling accelerated in July for the first time since December, raising the potential for greater supplies. A nuclear deal between Iran and six world powers also opened the door to more oil exports from the Middle East.

Corn and soybeans fell as improved weather conditions raised the prospects for the harvest. Grain prices were also pressured by the turmoil in China, which sowed concern about export demand.

These worries pushed copper prices to a six-year low in July, slashing 9.8% off the metal’s value for the month. China drives 40% of global copper demand.

Lean hog prices fell 14.3% in July. However, since the S&P GSCI Total Return index tracks the daily performance of the contract as well as daily interest earned on funds committed to the investment, this index component rose 0.5% for the month.

Gold sank to a five-year low during July amid disappointment that China’s official gold reserves didn’t grow as much as expected over the past six years.

With commodities so beaten down, there is a greater potential that prices will bounce back than make new lows, said George Zivic, who manages $325 million at Oppenheimer Commodity Strategy Total Return fund. “I think the next 10% is up not down from here,” Mr. Zivic said.

But others say there are more losses on the horizon. Tim Rudderow, chief investment officer at Newtown, Penn.-based Mount Lucas Management, which oversees $1.8 billion, said he has been “overwhelmingly bearish” on commodities, particularly gold.

“Commodities go up on the elevator and down on the escalator…I fully assume that over the next six to 12 months, we will be steadily lower in commodity prices,” he said.

Overheard: Missing the Inflation Target

Inflation? Bond-market investors are looking for a lot less of it than they did a month ago.

The Treasury market’s implied forecast of what inflation will average over the next five years—calculated from the simple difference between yields on the five-year Treasury and the five-year Treasury inflation-protected security—finished July at 1.36%. That compared with the 1.61% the five-year break-even rate held at June’s end and brought it to levels last seen in March. A bunch of things happened last month to bring the inflation forecast lower. Crude oil and many other commodities fell sharply. The dollar strengthened. Layer in worries that China’s stock-market woes hurt its economy as well as scant signs U.S. wage gains are accelerating, and you can see why investors might be looking for less in the way of inflation in the years ahead.

For Federal Reserve policy makers, this is a problem. One of their criteria for a rate increase is confidence inflation is moving toward their 2% target. That seems to be lacking now.

Carlyle Fund Walloped in Commodities Rout

By Christian Berthelsen, Rob Copeland

Three years after private-equity giant Carlyle Group LP touted its purchase of a hedge-fund firm, a rout in raw materials has helped drive down holdings in its flagship fund from about $2 billion to less than $50 million, according to people familiar with the matter.

The firm, Vermillion Asset Management LLC, suffered steep losses and a wave of client redemptions in its commodity fund after a string of bad bets, including one tied to the price of shipping of dry goods, such as iron ore, coal or grains. At one point, two of Carlyle’s co-founders, David Rubenstein and William Conway, put tens of millions of dollars of their own money in the fund and left it in amid the losses and redemptions, according to people familiar with the matter.

Vermillion is in the midst of a restructuring, its co-founders left at the end of June, and it is pulling back from trading in several markets.

A collapsing market for raw materials is spreading pain well beyond commodities specialists to some of the heaviest hitters on Wall Street.

This week alone, commodity-trading firms Armajaro Asset Management LLP and Black River Asset Management LLC, a unit of agricultural conglomerate Cargill Inc., said they are closing funds. Several other firms that managed billions of dollars already have closed their doors, including London-based Clive Capital LLP and BlueGold Capital Management LLP. Large money managers including Brevan Howard Asset Management LLP and Fortress Investment Group LLC have wound down commodity strategies.

Assets under management at commodity hedge funds have fallen 15%, to $24.1 billion, since their peak in 2012, and nearly 30 firms out of 250 have shut down since that year, according to industry consultant HFR Inc. Commodity firms lost money for three years in a row before 2014, HFR said.

Commodities are one of the most challenging markets to invest in, because of their complexities and penchant for volatility. Some of the biggest hedge-fund blowups have involved commodity trading, such as the 2006 collapse of Amaranth Advisors LLC after sustaining more than $5 billion in losses on natural-gas trades.

Commodity prices have plunged due to a combination of factors, including a stronger dollar, an anticipated increase in U.S. interest rates and an expectation that cooling economic growth in China will undermine the country’s voracious appetite for resources. The S&P GSCI commodity index, which tracks commodity prices, has lost more than 8% this year and reached its lowest level since 2002 amid double-digit-percentage declines for everything from oil to wheat to copper to sugar.

Last year, some oil-trading firms scored huge returns when they correctly positioned for a collapse in crude prices by making bets that paid out when prices fell by 60% at one point.

But even some of the firms that were winners in crude’s tumble have been whipsawed. BBL Commodities LP, a $600 million New York firm led by former Goldman Sachs Group Inc. proprietary trader Jonathan Goldberg, was caught out by oil’s quick rebound earlier this year and is down about 15% through midyear after gaining more than 50% last year, according to a person familiar with the fund.

The losses aren’t contained to the usual bulwarks like oil or gold.

Take Andrew Lahde, the hedge-fund manager who earned more than 800% returns in 2007 betting against mortgages ahead of the financial crisis and memorably closed his firm in 2008 with a letter thanking the “low-hanging fruit, i.e. idiots” whom he traded against.

Now, Mr. Lahde’s latest venture, LCM Exponential LLC, is nursing 25% losses through midyear as it amasses the metal rhodium, a byproduct of platinum and palladium used in some cars to control pollution, according to people familiar with the firm. Rhodium has been dinged this year along with other precious metals, and securities tied to the price of physical rhodium have fallen 36% in the past year, including 28% in the past three months alone.

Mr. Lahde said he is sticking with the strategy that as production slows, prices will go up. He is storing his rhodium in a vault.

“Why would I expect anything less?” said Mr. Lahde of the price moves. “If you want to make a lot of money, you need volatility, and you need volatility to go your way.”

Vermillion’s flagship Viridian fund ran into headwinds in 2013 and 2014, losing 23% last year, according to people familiar with the fund. The firm had a successful strategy trading securities in a market tied to the price of shipping dry goods on the high seas and ramped up its investment in it as returns improved. But that withered as the firm remained bullish even while freight rates collapsed to historic lows in the second half of 2014 and early 2015. The trade lost more than 30% in the process and the position remains in the red, though it has recovered somewhat recently, the people said.

Messrs. Rubenstein and Conway, two of Carlyle’s co-founders, invested $30 million collectively in the firm, according to a person with knowledge of its operations. The current value of their stakes is unknown.

Christopher Nygaard and Drew Gilbert, who co-founded Vermillion in 2005 and sold a majority equity stake in the firm to Carlyle in 2012, left at the end of June, according to people with knowledge of the firm’s operations. Vermillion is retreating from prior investments in oil, natural gas, coal, iron ore and agriculture, and traders and strategists involved in managing those strategies are leaving, these people said.

Messrs. Nygaard and Gilbert declined to comment. Mr. Brennan didn’t respond to a request for comment.

Vermillion will continue managing investments in metals and freight-rate strategies, and the flagship fund remains in operation despite the low level of capital, according to people familiar with the firm.

Vermillion also has added new investment vehicles offering broad bullish exposure to a basket of commodity markets and has a new venture in commodity-finance lending that executives think can expand into a multibillion-dollar business, the people said.

Vermillion had $2.2 billion under management at the time of the Carlyle acquisition; its assets in the legacy flagship, metals and freight funds have fallen to just over $400 million since then, though the new strategies in lending and index products have added about $1 billion. The firm’s total assets under management now stand at $1.4 billion.

As Fed Rate Rise Nears, Traders Obsess Over Data

In the race to predict the timing of the Federal Reserve’s anticipated interest-rate rise, traders are digging ever deeper into the slew of economic data points released each day.

On Friday, it was the turn of an often-overlooked report on wage growth to hit center stage. The Labor Department on Friday released data showing wage growth in the second quarter was the lowest since records began in 1982.

The report, which is often watched by the Fed as a sign of inflationary pressure in the economy, fueled doubts among some investors and traders that the Fed will increase the short-term benchmark interest rate in September as many economists predict. Some traders speculated that December, and possibly even early 2016, is increasingly becoming a more likely moment for the Fed to move.

Both bond yields and the dollar fell sharply on the report, illustrating investors’ intense preoccupation with the timing of the first rate increase in nearly a decade. Friday’s moves also foreshadow the heightened volatility that many traders anticipate as the September meeting nears.

Friday’s rally in Treasurys pushed the yield on the 10-year Treasury note to its biggest monthly decline since January. The yield on the two-year note, among the most sensitive to changes in the outlook for Fed policy, also tumbled. Bond yields fall when prices rise.

Many market watchers agree that when the Fed does raise rates from near-zero levels, it will move slowly, which should cap moves across stock, bond and currency markets. But big prices swings are still likely, analysts say, as investors track economic data to position themselves for a September, December or even 2016 rate increase.

“The markets are justifiably sensitive right now, especially when relevant economic data come in at extreme levels, and the market is already 50-50 on the Fed hiking interest rates in September,” said Shahab Jalinoos, currency research analyst at Credit Suisse.

The Fed has been monitoring the employment market closely. After its most recent two-day policy meeting that ended Wednesday, the central bank acknowledged that it is still on track to raise rates this year due to gains in the U.S. labor market.

The U.S. employment-cost index, a measure of workers’ wages and benefits also known as ECI, rose a seasonally adjusted 0.2% in the second quarter from the first quarter. That fell below Wall Street expectations for a 0.6% increase.

Steven Englander, head of developed-market currencies strategy at Citigroup said the ECI was a “huge shock.” He added: “People are now thinking this number will give the Fed pause.”

In the moments immediately after the report’s release, the dollar sank as much as 1.7% against the euro before paring most of the losses later in the day. In late New York trading on Friday, one euro bought $1.0984, compared with $1.0933 late Thursday.

Despite Friday’s selloff, the dollar rose 1.4% against the euro for the month of July.

While the U.S. economy picked up speed in the second quarter after a soft patch, Fed officials and investors are grappling with how to interpret sluggish global economic growth and subdued inflation. Commodities in recent days have resumed falling. And Chinese stocks in July posted their biggest monthly selloff in six years, heightening concerns over the slowdown of the world’s second-largest economy.

The prospect of higher rates has lured fund managers to the dollar, sparking a rally in the greenback last year that sputtered early in 2015 amid a soft patch in the U.S. economy. Since then, the dollar has gyrated on economic indicators and remarks by Fed officials.

The yield on the benchmark 10-year Treasury note on Friday fell to a three-week low of 2.207% from 2.268% Thursday. The yield on the two-year note slid to 0.676% from a one-month peak of 0.731% on Thursday.

Mr. Lewis said he is skeptical the Fed can raise rates in September and added that Friday’s report is “a green light for investors to move out of cash and into bonds.”

The odds of a rate increase by the Fed at the September policy meeting were 38% Friday, compared with 48% Thursday and 40.5% a week ago, according to traders. The odds for a rate increase at the December meeting were 68.4 % Friday, compared with 80.5% Thursday and 71.7% a week ago.

The calculations are based on implied yields from fed-funds futures which are used by investors and traders to place bets on central-bank policy.

Federal Reserve Bank of St. Louis President James Bullard played down the ECI report, saying that the Fed is in “good shape” for increasing the rate target at the Sept. 16-17 meeting. Mr. Bullard doesn’t currently hold a vote on the Fed’s policy-making committee.

The Dow Jones Industrial Average shed 56.12 points, or 0.3%, to 17689.86, on Friday, dragged down by a decline in shares of big oil companies that reported weak earnings. The move lower was muted by Friday’s wage report and the prospect of ultralow rates for longer.

The nonfarm payrolls report due next Friday is expected to show 215,000 new jobs were added in July, in line with the recent trend of strong employment growth. Some traders played down the importance of the wage report, saying that the two job reports ahead of the September Fed meeting will weigh more heavily.

Daniel Mulholland, senior U.S. Treasury trader at Crédit Agricole in New York, said the door remains open for the Fed to raise rates in September amid solid jobs growth. Fed Chairwoman Janet Yellen “has previously told us that wage growth is not a pre-condition for rate hikes,” said Mr. Mulholland. “The Fed has told us they will be data dependent and there are two more payroll reports prior to” the Fed’s next policy meeting in September, he said.

“Data dependency is a nice option for the Fed, but it makes the market more prone to overshooting in either direction after each major data release,’’ said Zhiwei Ren, managing director and portfolio manager at Penn Mutual Asset Management Inc., which has $20 billion assets under management.

Bank of America Gives Details on Vote About Moynihan’s Role

By Lisa Beilfuss

Bank of America Corp. on Friday gave more details about its plans for letting shareholders have a say about whether Chief Executive Brian Moynihan can keep his chairman title.

Responding to pushback from influential shareholders including California State Teachers’ Retirement System, or Calstrs, the second-largest pension fund in the U.S. by assets, the bank in May said it would give shareholders a chance to vote on the move the company made in October to give Mr. Moynihan the role.

In a filing with the Securities & Exchange Commission, the Charlotte, N.C.-based lender said it appreciates “the candor” with which holders have expressed “insights and perspectives” and confirmed it is calling a special meeting with a vote to ratify the board’s power to select a leadership structure that it sees fit.

To elevate Mr. Moynihan, board members overrode a 2009 rule passed by shareholders during the depths of the financial crisis requiring that the two jobs be held by separate people. The board also changed the bank’s bylaws to do so, aggravating big pension funds and other institutional investors who weren’t consulted in advance.

In its filing Friday, Bank of America suggested that the special meeting would occur later this year, but didn’t set a specific date. The company said stockholders of record as of Aug. 10 will be eligible to vote.

China’s Stock Markets: Nearly 25 Years of Wild Swings

By Chao Deng

In the two years after China opened its stock markets, shares soared 1200% and twice fell by half. Investors seeking IPO shares rioted, overturning cars and smashing windows, leading police to use tear gas and fire their guns in the air to quell the disturbance.

China will celebrate the 25th anniversary of the opening of its stock markets later this year, and not much has changed since their founding. They vacillate between big government-driven rallies and equally dramatic selloffs that leave once-euphoric investors disillusioned and angry.

“China’s stock markets have developed quickly and their accomplishments are great, but they are very irregular,” Zhu Rongji, China’s premier at the time, said in 2000. “If they are to receive the people’s trust, the investors’ trust, then they have a lot of work to do.”

Stocks are down by 29% from their peak in June, and investors have continued to sell shares despite the strongest efforts ever by Beijing to prop up prices. The current bear market—defined as a fall of 20% or more from a peak—is the 27th that investors have suffered in the past 25 years. It is the 21st worst in terms of losses.

Shares have lost half their value three times, and plummeted by two-thirds once, in 1993-1994, when the Shanghai Composite Index fell by 67% from its peak to its low point.

The 27 bull markets have been equally dramatic, though none has come close to the initial 1200% gain. The market has gained more than 100% on eight occasions. The most recent bull market, which began in December 2012 and stretched until June, making it the longest in China’s history, clocked in at 164%.

The reopening of the Shanghai market, which dated to the 1860s and had been closed since the Communist takeover in 1949, signaled a victory for economic reformers led by Deng Xiaoping. The Shenzhen market, created in 1990, was a boost for the southern Chinese city that was home to some of the most far-reaching economic overhauls.

Still, the government maintained heavy control over the markets. Investors based their buy and sell decisions on what they thought Beijing would do next.

The 1992 riots, in a tense period just three years after the Tiananmen Square crackdown, highlighted the perception among investors that the government effectively ran the stock markets. Hundreds of thousands of people lined up over a hot August weekend to get applications to invest in initial public offerings, which they believed would soar because every IPO had to be approved by the government.

When the applications ran out, the investors accused officials of hoarding them for their friends and family, or to sell at a profit. Police moved in, but nervous authorities also acted to placate the protesters.

They fired several government officials and put a new regulatory body in charge of the stock exchanges, yet trading remained wildly volatile. Stocks swung into bull or bear markets seven times in the next five months.

Back then, the Chinese markets were considered a curiosity for a communist country. Today, the mainland exchanges, at a combined $8.4 trillion in market capitalization, are the world’s second largest. Only the U.S. stock market, with its New York Stock Exchange and Nasdaq OMX, is bigger.

Yet while investors overseas have more exposure to China than ever before, the markets are still largely isolated from the global financial system. They operate differently than all of their major counterparts.

The government is by far the biggest investor, maintaining controlling stakes in defense, energy, telecommunications, finance and other key sectors. Authorities have unleashed an unprecedented combination of measures to prop up stocks, letting hundreds of firms halt their trading and signaling that the central bank stood ready to provide unlimited support.

The selloff earlier this week was driven by the belief that the government might reduce that backing. After shares fell 8.5% Monday, the country’s securities regulator said it would step up buying and wasn’t exiting the market. Tuesday, it said it was launching an investigation into whether investors coordinated the dumping of shares.

The index closed on Friday at 3663.73, bringing its losses in July’s second wave of heavy selling to 12%, even though the government has said it would keep buying until the Shanghai market hit 4500. In the first bout of selling, Shanghai lost nearly one-third of its value.

Beijing has consistently tried to control the market by managing the flow of IPOs, launching huge offerings when stocks were was strong and cutting them off when shares stumbled, in the belief that limiting the supply would stabilize prices.

A ban on IPOs that began in the summer of 2005, for example, was aimed at curbing a four-year market slump and making way for a major share-reform plan that would unload previously untradeable stock controlled by officials and company insiders.

The government let firms list again in mid-2006, paving the way for the domestic offerings of state behemoths like Bank of China Ltd., China Construction Bank Corp. and PetroChina Co., just as the market headed for record highs.

“IPOs have been very much a political tool. There’s not a one-to-one correlation, but these are tools you see over and over again,” said Fraser J.T. Howie, co-author of “Red Capitalism,” a book on China’s financial system. “There’s an expectation of the government adjusting policy to suit the market, in a cheerleading fashion.”

Perhaps the most striking IPO came in November 2007, after Shanghai had already risen 500% in its second-biggest bull market. PetroChina raised $8.9 billion, giving it a market value of more than $1 trillion, by far the largest of any company in the world and twice that of Exxon Mobil Corp., the second-biggest.

It was as good as it got for PetroChina and for the market. Even though investors believed the government would keep the rally going until after the Beijing Olympics in August 2008, shares had already peaked. They fell by two-thirds until they hit bottom in 2014.

The Shanghai Composite remains almost 40% below that all-time peak. PetroChina’s Shanghai shares had fallen 83% by the time they reached their low point in June 2013.

Stocks remain a battleground, caught between “the financial technocrats who want a bigger role for markets in the name of more efficient and sustainable economic growth” and “politicians and planners who insist on a large state role in the economy,” Arthur R. Kroeber, the head of research at GaveKal Dragonomics, an economic research firm, said in a Brookings-Tsinghua Center opinion piece on July 13.

When the Shanghai market fell in 1992, one way authorities tried to stem the rout was to announce that state-owned banks would form three huge securities houses to assert control over stocks.

A report at the time by the People’s Daily, the Communist Party’s official newspaper, said the new “market-style” firms would smooth out market swings and “increase the state’s macroeconomic control over the stock markets.”

Today, the same publication is working to convince investors that Beijing is committed to letting the market operate freely. “The determination to reform remains unchanged,” said a People’s Daily report on July 23. The government’s recent measures “should not be seen as a change of direction and more importantly should not be seen as a step backwards in reform.”

A ‘Therapeutic’ Approach to Financial Planning

By Anne Tergesen

Does your inner child have too much influence over your financial life? Do your finances stress you out? A growing number of so-called financial therapists want to help.

Due in part to the rising popularity of behavioral finance—an academic field that holds that people often don’t make rational economic decisions—financial planners are borrowing techniques from psychologists and other specialists in our emotional lives.

Their goal: to help clients get in touch with the often messy feelings behind their relationships with money. That can involve exploring unconscious beliefs or past experiences that contribute to self-destructive financial behavior or clarifying big-picture goals and aspirations before getting down to the nitty-gritty numbers.

For example, to get clients in touch with their “money scripts”—or beliefs about money—Rick Kahler, president of Kahler Financial Group Inc. in Rapid City, S.D., asks for the first thought that comes to mind when he pairs the word “money” with dozens of other words, such as “fathers,” “mothers” and “work.”

When asked about “money and death,” one client realized her difficulties with saving dated to the death of her child. “The message she took from that experience was that you never know when life is going to end, so you might as well just spend it,” Mr. Kahler says, adding that the insight helped the woman improve her saving.

Reed Fraasa of Highland Financial Advisors LLC in Riverdale, N.J., says he now devotes three meetings rather than one to getting to know new clients. “In the past, I would have listened but I would have also been quick to give advice,” he says. Now, his goal is to “have a conversation where I just listen and they feel totally free and open to share their dreams and aspirations.”

The ranks of financial therapists are small but growing. Launched in 2010, the Financial Therapy Association now has 225 members. Mr. Fraasa is among some 350 financial planners who have become registered life planners—with almost 2,500 more working toward that goal, according to the Kinder Institute of Life Planning. Kansas State University, the Financial Psychology Institute and the Sudden Money Institute, which trains advisers to help clients through divorce, job loss and other transitions, also have recently launched programs to train advisers in the softer side of financial planning.

The combo approach “is becoming a hot topic within the industry,” says St. Louis-based adviser David Oransky, a registered life planner.

But some advisers have reservations.

Buz Livingston, a Santa Rosa Beach, Fla., adviser, says that while he doesn’t doubt that advisers can improve their listening skills and awareness of the “emotional baggage” that affects clients’ financial decisions, “I think the average planner needs to realize his or her limitations.” Just as Mr. Livingston would refrain from offering a client tax or legal advice, he says, “I think it takes years of training before you can market yourself as a therapist.”

There also has long been a trend among financial advisers of paying to earn various designations and accreditations meant to show expertise in a particular niche, such as serving retirees.

Potential clients should be aware that not all financial therapists have financial-planning backgrounds. Some hail from mental-health fields and often focus on solving one issue, such as anxiety due to cash-flow problems. For comprehensive financial plans and continuing advice, individuals should make sure an adviser has extensive experience and holds a major designation, such as being a certified financial planner.

One factor behind the trend toward financial therapy, some advisers say, is a desire to add high-touch services to compete with robo advisers, firms which provide low-cost computer-programmed financial planning that cuts human advisers out of the equation. Other advisers are motivated by a realization that some clients have difficulty changing saving behavior to conform to a financial plan that they have paid for.

“Change has to come from within,” says Brad Klontz, an associate professor of personal financial planning at Kansas State University, who uses the techniques at his Burlingame, Calif., firm, Occidental Asset Management LLC. “Advisers need to help clients find a way to do that.”

Mr. Klontz says a study he and four co-authors published in 2008 in Psychological Services, a peer-reviewed journal of the American Psychological Association, shows that financial therapy can be effective. In that research, 33 individuals who underwent a six-day therapy program reported “statistically significant” improvements in their financial behavior and their anxiety, depression and stress about money—gains they maintained for three months afterward.

Although financial therapists use a variety of approaches, most are trained in the type of listening skills therapists employ. Mr. Oransky says “a longer discovery process means it takes longer [for the adviser] to get paid,” because it delays the transfer of assets to the firm to manage. But if a plan is based on a client’s dreams—for example, taking a year off to live abroad—rather than generic goals like saving for retirement, clients “are more likely to implement the plan.”

To prompt clients to clarify their goals, Mr. Fraasa asks three questions devised by George Kinder, founder of the Kinder Institute of Life Planning, which trains life planners: What would you do if you had all the time and money in the world? How would you live if you knew you had only five to 10 years left? And what would you most regret if you died tomorrow?

Daniel Sheff, 57 years old, of Lexington, Mass., a client of Mr. Fraasa, says he debated leaving his medical practice for years—a step he took last year to pursue teaching “spiritual well-being” through the Torah.

Dr. Sheff says he acted after Mr. Fraasa helped him focus “on my deepest aspirations” while also providing financial projections that showed he and his wife could afford to make the change.

Mr. Fraasa also helped Dr. Sheff understand the roots of his fears about money, the client says. “I grew up in an upper-middle-class household, but there was a downturn in my family’s finances when I was a teenager and so I always had the sense that even when things were good, they might not last,” Dr. Sheff says. “This has given me the chance to live my life.”

Oil Prices Fall to Multi-Month Lows as U.S. Rig Count Rises

By Timothy Puko

Oil prices fell to new multi-month lows Friday as data showed U.S. producers put more drilling rigs to work despite a lingering world-wide glut.

Many analysts and investors have warned for months that crude production could keep rising even amid massive cutbacks from U.S. producers. U.S. prices have fallen into bear market territory in recent weeks as that scenario has started to play out.

Now U.S. producers are putting more rigs to work. Baker Hughes Inc.’s weekly oil rig count rose by 5 to 664 this week, on top of a 20-rig increase last week. Combined with larger-than-expected production from the Organization of the Petroleum Exporting Countries, the move shows how a glut of oil may persist despite the slide in prices over the past year, analysts said.

“It’s just one more thing that adds to that bearish feel to the market,” said John Saucer, vice president of research and analysis at Mobius Risk Group in Houston. He said oil prices are likely to test their lows for 2015. Production “has really overwhelmed demand, even though demand is up.”

Money managers have retreated to their weakest bullish stance on oil in nearly five years, adding twice as many bearish bets as bullish bets in the week that ended Tuesday, according to data the Commodity Futures Trading Commission released late on Friday.

News of the added rigs and crude’s continued fall overshadowed signs that U.S. production may have peaked after all. The U.S. Energy Information Administration released data late Friday afternoon showing that the country’s oil production hit a 44-year high of nearly 9.7 million barrels a day in March and has declined to 9.5 million barrels in the two months since. Though the declines have been small, it is the first proof that production has peaked, a data point many traders have been seeking desperately.

The U.S. benchmark settled down $1.40, or 2.9%, to $47.12 a barrel on the New York Mercantile Exchange. Losses accelerated in the afternoon, especially after the rig-count data was released, and landed at their lowest settlement since March 20.

Brent, the global benchmark, fell $1.10, or 2.1%, to $52.26 a barrel on ICE Futures Europe, the lowest settlement since Jan. 29.

The losses put U.S. crude down nearly 21% for July. Brent lost nearly 18% for the month. Both had their worst month since December. The U.S. benchmark has finished lower in 21 of the past 27 sessions. Brent has posted losses in 11 out of the last 13 months.

High international supplies have kept prices under pressure and increased competition among producers who are taking cost-cutting measures. But few have ventured to cut production, and instead have targeted higher-producing wells and more efficient drilling techniques as they all fight to hold on to their customers and sell more oil, even at lower prices.

Comments by Abdalla Salem el-Badri, secretary-general of OPEC, on Thursday have done little to reassure the market that the oil glut will be tackled soon. Mr. el-Badri was in Moscow for talks with Russia’s energy minister, Alexander Novak.

“OPEC shows absolutely no sign of blinking,” said David Hufton of PVM Oil Associates in London. He said the secretary-general believes an increase in oil demand will support prices and will absorb any additional oil exports from Iran. “Unfortunately for OPEC, the data, such as it is, does not support this view,” he added.

The world will be entering 2016 with a record high level of global stocks, and the average surplus is expected to be around 1.5 million barrels a day, he said.

Traders who move based on charts added to the push lower on Friday, said Ric Navy, senior vice president for energy futures at brokerage R.J. O’Brien & Associates LLC. Because oil prices weren’t able to rally off the multi-month lows they set earlier this week, it convinced many of those traders that a broader selloff was likely to continue, possibly pushing oil toward $44 a barrel very quickly, he added. “All the charts point lower,” Mr. Navy said.

Gasoline futures gained 1.31 cents, or 0.7%, to $1.841 a gallon.

The glut of crude has also spilled over into oil-products, especially diesel, which fell to a new six-year low on Friday. It has lost nearly 20% in three months, its worst three-month performance since the one that ended in January, pushing diesel futures to their lowest settlement since July 15, 2009.

Oil Shares Weigh on Dow Industrials

Big oil companies pulled the Dow Jones Industrial Average lower on Friday, on disappointing earnings reports and a sign of increased U.S. oil drilling despite a renewed slump in crude prices.

The Dow Jones Industrial Average shed 56.12 points, or 0.3%, on the day to 17689.86. The index was down from an intraday high of 17783.5. The S&P 500 reversed from modest gains earlier in the session to fall 4.7 points 0.2% to 2103.84. The Nasdaq Composite Index fell less than 0.1%, or 0.5 points to 5128.28.

On the other side of the Atlantic, the Stoxx Europe 600 rose less than 0.1% to 396.37.

Shares of large U.S. oil companies, already pressured by downbeat earnings reports, fell after oil-field services firm Baker Hughes said on Friday afternoon that the number of active U.S. oil rigs rose by five this week to 664, the second consecutive weekly increase.

Oil futures prices fell after the data were released, with Nymex crude settling at $47.12 a barrel, down 2.9%, or $1.40.

Together the two companies’ share-price drop shaved about 56 points off the Dow. “That should not surprise anyone,” Randy Frederick, managing director of trading and derivatives at Charles Schwab, said of the oil companies’ results.

Still, the Dow Industrials eked out a 0.4% gain in July, the largest since May. The S&P 500 rose about 2% in the month, the biggest monthly percentage gain since February.

Friday’s losses were somewhat muted by a report that showed paltry growth in U.S. wages, which cast some doubt over whether the Federal Reserve would raise interest rates in the coming months.

The U.S. employment-cost index, a measure of workers’ wages and benefits, rose a seasonally adjusted 0.2% in the second quarter from the first quarter, the Labor Department reported. The gains marked the smallest quarterly rise since record-keeping began in 1982, and fell below economists’ expectations of a 0.6% increase.

“I think what the markets are reading is that once again this another one in the column for “no” [for a Fed rate rise] in September,” said Jeffrey Yu, head of single-stock derivatives trading at UBS Group AG.

Even if the Fed were to raise rates by a quarter percentage point, it wouldn’t likely encourage investors to sell stocks and pile into other asset classes like bonds, said Gordon Charlop, managing director at Rosenblatt Securities. “What does a quarter [percentage] point do? Does it mean I’m going to sell all my equities? I don’t think so,” Mr. Charlop said. “It’s like jumping off a snake’s belly.”

The dollar weakened 0.5% against the common currency, as one euro bought $1.0981 in late-afternoon trade.

Gold futures posted their steepest monthly decline since June 2013, after investors slashed gold holdings in anticipation of higher U.S. interest rates. The most actively traded contract, for December delivery, settled up $6.40, or 0.6%, at $1,095.10 a troy ounce on the Comex division of the New York Mercantile Exchange.